Incorporation Services
Types of "Not-for-Profit Corporations
Not-for-profit corporations are incorporated for the purpose of carrying on,
without pecuniary gain, objects of a patriotic, charitable, philanthropic,
religious, professional, sporting or athletic character. In other words,
not-for-profit corporations are engaged in activities that are of benefit to the
community. They are incorporated under Part III of the
Corporations Act as corporations without share capital.
Basically, there are five types of not-for-profit corporations:
General type - this would include such corporations as ratepayers' associations,
business or trade associations, community organizations, etc.;
Sporting and athletic organizations;
Social clubs - these are corporations with objects in whole or in part of a
social nature;
Service clubs such as Rotary, Lions, Kiwanis and Optimist;
Charities - these would include religious organizations and organizations that
are engaged in carrying out certain good works that are of benefit to society.
(See Part 6 in this Handbook)
One of the main differences between a charity and another type of not-for-profit
corporation is that upon dissolution a charity is required to distribute its
remaining assets to other charities, not to its members, whereas another type of
not-for-profit corporation may (unless prohibited from so doing in its charter
of by-laws) on dissolution distribute its remaining assets among its members.
Also, a charitable corporation, because it usually solicits funds from the
public and enjoys certain legal and tax advantages (e.g. under the Federal
Income Tax Act) is subject to more stringent reporting requirements than a
not-for-profit corporation of another type.
Elements of a Corporate Name
Most corporate names consist of three elements:
The DISTINCTIVE element is the main identifier of the corporate name.
It may be a coined word of a dictionary word used in a fanciful sense quite
different from its ordinary meaning or geographic term. Every corporate
name must have a distinctive element.
The DESCRIPTIVE element describes the nature of the main corporate
undertaking. Care should be taken not to use terms that may be mis-descriptive
or misleading.
The LEGAL element indicates the status of the organization as an
incorporated body. Either "Corporation" or "Incorporated" or "Incorporee"
of their abbreviations may be used. The use of this element is
optional, for the "Not-for-Profit" Corporations.
|
DISTINCTIVE
ELEMENT |
DESCRIPTIVE
ELEMENT |
LEGAL
ELEMENT |
|
Canvelo |
Cycling Club |
Inc. |
| Village Green |
Square Dancers |
|
| Don Mills |
Student Exchange |
Corp |
Advantages to Incorporating
the liability of the members is limited (for example, members are not personally
liable for debts of the corporation)
continuity of the organization is assured while the membership changes
a corporation can own property in its name regardless of membership change
the ability to bring legal action in its own name (an unincorporated body
cannot), and
the chances of receiving government grants may increase because of the stability
the organization appears to have.
What is a Charitable Corporation
Charities are a special kind of not-for-profit corporation. In order to be
a charity, a corporation must meet the general requirements for not-for-profit
corporations and some additional requirements. A summary of these
additional requirements is set out below:
The Name of the Corporation
The name of a charitable corporation must satisfy all of the requirements set
out for "Not-for-Profit" Corporations. The name should also describe
the purpose of the charity. The name of a foundation can include the name
of a person or family, for example, the "Smith Foundation"
The Objects or Purposes of the Corporation
The objects, or purposes, of a corporation are set out in one or more
paragraphs, in the Letters Patent, called the object clauses. The object
clauses describe the nature of the work the charitable corporation will
undertake.
A corporation can carry out activities described in the object clauses. It
can also carry out other activities provided they further the objects or are
minor in relation to the activities described in the object clauses. It is
not permissible to use the property of the corporation for purposes, charitable
or not, which are outside the scope of the objects set out in the Letters
Patent.
For a corporation to be a charity the objects must satisfy the following
requirements:
a) The objects of the
corporation must be legally charitable
If a
corporation is to be a charity its objects must be charitable.
The legal meaning
of "charity" is not the same as the popular
meaning of the
word.
Charity, in the
legal sense, describes four areas. A charitable
corporation must be
set up to carry out activities in one or all of
these areas.
They are:
•
Relief of poverty;
•
Advancement of education;
•
Advancement of religion; and
•
Other purposes beneficial to the community, as determined
by the courts, but not falling under any of the above.
It is important that the object
clauses clearly describe the activities
the corporation will carry out.
It is not acceptable simply to
reproduce the four principal areas of
charity.
All of the objects of a charitable
corporation must be charitable. A
corporation which has some charitable
objects and some non
charitable objects is not a charity.
Objects must be stated precisely so
that it is clear how the property
of the charity is supposed to be
used. If it is not clear whether an
object is charitable, the courts have
decided that it will not be
considered charitable.
b) The objects must promote a public benefit
A charity must benefit the community or a large part of the
community - not only a few people. For example, raising funds for
one person who suffers from a disease is not considered charitable
because it provides a benefit only to that person. Raising funds for
disease research is considered charitable because, while only the
people who suffer from the disease benefit directly from research,
the community as a whole benefits from decreased health care
costs and decreased risk of contracting the disease.
Obtaining Charitable Status
The Canada Customs and Revenue Agency (CCRA) ( formerly Revenue Canada) is the
government department responsible for granting organizations charitable tax
status. The process routinely takes 6 months to 18 months and
requires applicants to fulfill a number of requirements. One of the major
advantages of obtaining charitable status, is that the organization is able to
issue receipts to donors for income tax purposes. This can be a major
advantage when soliciting for donations. In addition, charities receive
certain tax exemptions. If an organization is created in Canada, is
non-profit and is charitable in purpose, it may qualify as a charity within the
meaning of the Income Tax Act. A non-profit corporation cannot issue
tax deductible receipt simply because it is a non-profit corporation. It
must first submit an application and be accepted as having charitable status.
Revenue Canada has pre-approved a series of pre-approved clauses to
simplify applying for a charitable registration number (now known as a business
number). If you intend to apply to Revenue Canada for charitable
registration and you wish to use any of the pre-approved clauses, you must use
the pre-approved clauses word-for-word. Even if Companies Branch issues
the Letters Patent, Revenue Canada may not approve the clauses if there is a
variation in wording.
Your organization's use of proper objects is only part of Revenue Canada's
requirements for charitable registration. Revenue Canada must take other
factors into consideration, including the activities and programs your
organization undertakes to achieve its objects. For more information on
how to apply to Revenue Canada for charitable registration you may wish to
contact your local Revenue Canada office which can be found in the blue pages of
your telephone book or call the Charities Division in Ottawa at (613) 954-0410,
Toll-Free 1-800-267-2384
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